Last month I had the opportunity to speak with a couple of public service groups. One of the topics of my presentations was the benefits associated with buying an existing profitable business. I began the presentation by recapping a recent article that I read which pointed out that 23% of new businesses don't make it past the first birthday and more than half will fail to make it through three years.
The reasons for this are numerous. Bad management, poor business concept, insufficient operating capital, weak customer base, strong competition, or even just plain bad luck can individually or collectively contribute to a business' failure.
Owners of a new business need to juggle a multitude of details such as product and service positioning, branding, marketing, employee hiring and training, site selection, etc. Even when all the stars are aligned and correct decisions are made, it can be months or even years before the owner begins to experience positive cash flow. Imagine if these potential pitfalls for a new business owner can be significantly reduced. They can.
Many entrepreneurs choose to avoid these dangers by becoming a business owner through purchasing an existing profitable business instead of trying to start one from scratch.
There are many reasons for this. Successful existing businesses have a proven track record of profits that generally continue long after a business has been sold. As a new owner, the buyer can take the business to even higher profitability by instituting new ideas, expertise, and energy.
A business with a well-known name, location, product mix, knowledgeable employees, etc., will enable the new owner to focus on long range strategic planning rather than day-to-day minutia.
There will be no suffering through an extensive start-up period as the new business struggles to attract customers. An existing business’ established customers can serve as the base for future business growth.
Existing businesses can be attractive to buyers because they are often able to leverage their investment by having the seller carry a note. This ensures that the buyer will get the maximum bang for their investment dollars.
Seller financing creates another important benefit for the buyer. Because of the buyer will want to do everything they can do to ensure the success of the new owner; a training period can be negotiated so the seller sticks around to ensure a smooth transition.
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